Currently
before the Court are the Motion for a Preliminary Injunction
[Doc. No. 102] filed by Plaintiff Thrivent Financial for
Lutherans (“Thrivent”), the Motion for a Stay
[Doc. No. 75] filed by Defendants R. Alexander Acosta,
Secretary of Labor, and the Department of Labor
(collectively, “DOL”), and cross motions for
summary judgment [Doc. Nos. 14 & 22] filed by the
parties.[2] For the reasons set forth below,
Plaintiff's Motion for a Preliminary Injunction is
granted, Defendants' Motion for a Stay is granted,
Plaintiff's Motion for Summary Judgment is denied without
prejudice, and Defendants' Motion for Summary Judgment is
withdrawn.

I.
BACKGROUND

Thrivent
brought this suit pursuant to section 702 of the
Administrative Procedure Act (“APA”), 5 U.S.C.
§ 702, challenging a requirement contained in a recent
DOL rule which it claims would effectively prohibit it from
requiring individual arbitration to resolve disputes with its
members. Thrivent argues that the new requirement contravenes
the Federal Arbitration Act (“FAA”), 9 U.S.C.
§ 1 et seq., which broadly “reflects an emphatic
federal policy in favor of arbitral dispute
resolution.” KPMG LLP v. Cocchi, 565 U.S. 18,
25 (2011) (citation omitted). In its Complaint, it asks the
Court to declare the requirement in violation of the APA and
the FAA, and enter a permanent injunction prohibiting its
enforcement. (See Compl. at 28 [Doc. No. 1].)

Pursuant
to Wisconsin state law, Thrivent is required to provide
insurance benefits to its members. See Wis. Stat.
§ 614.01(1)(a)5. It meets this requirement with a broad
range of insurance and financial products and services,
including traditional life insurance offerings, annuities,
disability insurance, long-term care coverage, mutual funds,
retirement planning, and money management services.
(See Kinney Decl. ¶ 3 [Doc. No. 17].) Several
of the products Thrivent offers are proprietary in nature,
such as fixed indexed[3] and fixed rate[4] annuities. (Id.
¶ 4.) These latter offerings have the benefit of being
acquirable through an Individual Retirement Account
(“IRA”), in contrast to traditional life
insurance products. (Id.)

Thrivent
asserts that many of its members are individuals and families
of modest means. The majority of its account holders have
annual household incomes under $75, 000, and nearly half of
its 333, 000 IRA annuity contracts have cash values of less
than $25, 000. (Id. ¶ 8.) Because most of these
members trade infrequently and do not need ongoing financial
advice, Thrivent's financial representatives work under a
“transaction-based” compensation model, meaning
they receive a commission for each transaction.
(Id.) Thrivent asserts that this model is more
appropriate for most of its members than the competing
“fee-based” model, where the consumer pays
compensation periodically based upon a percentage of the
assets under management, or as a flat rate, regardless of
whether transactions occur. (Id.)

Since
1999, Thrivent has required that disputes with members
related to insurance products be resolved through its Member
Dispute Resolution Program (“MDRP”).
(See Johnston Decl. ¶ 9.) The MDRP provides for
a multi-tiered dispute resolution process, escalating
eventually (if necessary) to binding arbitration based on the
rules of the American Arbitration Association. (See
id., Ex. B at § 11(c).) Of particular relevance to
this matter, the MDRP mandates that all mediation or
arbitration be individual in nature-representative or class
claims of any sort, whether arbitral or judicial, are
expressly barred. (See id., Ex. B at § 11(e).)
Thrivent contends that its commitment to individual
arbitration is “important to the membership because it
reflects Thrivent's Christian Common Bond, helps preserve
members' fraternal relationships, and avoids protracted
and adversarial litigation that could undermine
Thrivent's core mission.” (See Id. ¶
9.)

B.
The Relevant Regulatory Framework

Retirement
investment advice, such as is offered by Thrivent, is
governed by several different regulatory and supervisory
regimes, including federal securities laws, state insurance
regulation, and industry self-regulatory bodies.
(See AR344-45.)[5] Of particular relevance to the present
matter is the Employee Retirement Income Security Act of 1974
(“ERISA”). See 29 U.S.C. § 1001
et seq. Among other requirements, ERISA prohibits
investment advisers classified as “fiduciaries”
from engaging in actions that would constitute a conflict of
interest. See Id. § 1106(b); see also
I.R.C. § 4975(c)(1). For example, a fiduciary is
prohibited from self-dealing, and from “receiv[ing] any
consideration for his own personal account from any party
dealing with the plan in connection with a transaction
involving the assets of the plan.” See 29
U.S.C. § 1106(b)(3); see also I.R.C. §
4975(c)(1)(F). For purposes of ERISA, a “person is a
fiduciary with respect to a plan” if, among other
things, he “renders investment advice for a fee or
other compensation, direct or indirect, with respect to any
moneys or other property of such plan, or has any authority
or responsibility to do so . . . .” 29 U.S.C. §
1002(21)(A)(ii) (the “investment advice” prong).

Pursuant
to statute and executive order, DOL has been granted
interpretive, rulemaking, and exemption authority for the
“fiduciary” definition and the prohibited
transaction provisions, both in ERISA and the parallel
provisions of the Code. See 29 U.S.C. § 1135;
Reorganization Plan No. 4 of 1978, § 102, 43 Fed. Reg.
47, 713 (Aug. 10, 1978). In 1975, DOL issued regulations
establishing a five-part test for determining whether someone
qualifies as a “fiduciary” under the
“investment advice” prong of 29 U.S.C. §
1002(21)(A)(ii). See 40 Fed. Reg. 50, 842 (Oct. 31,
1975). Under this test, a financial adviser became a
fiduciary only if (among other things), he or she provided
advice on a regular basis and the parties had a “mutual
agreement” that the advice would serve as a primary
basis for investment decisions. See Id. The 1975
regulations did not cover Thrivent's sale, marketing, or
advice to members regarding IRAs and distributions from
401(k) and other ERISA retirement plans. (See
Johnston Decl. ¶ 14.)

On
April 8, 2016, DOL issued a new rule that expanded the
definition of “fiduciary, ” as well as the type
of retirement advice covered by fiduciary protections.
(See Final Rule, Definition of the Term
“Fiduciary”; Conflict of Interest Rule-Retirement
Investment Advice, 81 Fed. Reg. 20, 946 (Apr. 8, 2016), AR001
(the “New Rule”).) Under the New Rule, a person
is deemed to be rendering investment advice for purposes of
29 U.S.C. § 1002(21)(A)(ii) if that person makes certain
“recommendations” to a retirement saver regarding
“securities or other investment property, ”
including recommendations with respect to rollovers,
transfers, or distributions from a plan or IRA. See
29 C.F.R. § 2510.03-21(a)(1). Here, the parties
apparently agree that Thrivent's commission structure and
sale of proprietary insurance products constitute prohibited
transactions under the New Rule. Cf. Chamber of Commerce
v. Hugler, No. 3:16-cv-1476-M, 2017 WL 514424, at *7
(N.D. Tex. Feb. 8, 2017) (“Under the [New Rule], a
person suggesting a consumer buy a particular annuity to hold
in an IRA would assumedly ‘render investment
advice.'”). Fiduciaries that engage in prohibited
transactions are subject to an excise tax equal to fifteen
percent of the amount of the prohibited transaction.
See I.R.C. § 4975(a). If the prohibited
transaction is not corrected within the tax year, however, it
is further subject to a tax “equal to 100 percent of
the amount involved.” Id. § 4975(b).

To
ameliorate some of the harshness of the New Rule, DOL
promulgated a number of regulatory exemptions that would
permit qualifying entities to continue to receive certain
forms of compensation (such as commissions), and engage in
otherwise prohibited transactions, without incurring punitive
taxes. For purposes of this matter, the relevant exemption is
known as the “Best Interest Contract Exemption”
(“BIC Exemption”). In order to qualify for the
BIC Exemption, affected financial institutions and
professionals must agree to a number of conditions designed
to ensure the maintenance of fundamental fiduciary standards.
(See AR063.) With regard to advice to IRA investors,
the BIC Exemption mandates that these specific conditions be
contained in a contract between the financial institution and
the retirement investor. (See AR078.) Of particular
importance here, while the conditions permit these contracts
to include individual arbitration agreements, the Exemption
is not available for contracts that waive or qualify
the investor's right “to bring or participate in a
class action or other representative action in court in a
dispute with the Adviser or Financial Institution.”
(AR134.) As originally contemplated by DOL, financial
institutions wishing to avail themselves of the BIC Exemption
are to implement such contracts with their investors by
January 1, 2018. (AR140.)

Thrivent
contends that because of its business model, it cannot
continue to offer its current line of insurance products to
its members without relief from the punitive taxation tied to
the New Rule. (See Compl. ¶ 12.) However,
because its MDRP-which is incorporated into every one of its
insurance contracts[6]-requires individual arbitration and
expressly bars class or representative claims, Thrivent
asserts that it cannot currently comply with the BIC
Exemption requirements. (See Id. ¶¶ 13,
77, 78.) Accordingly, it argues that DOL has left it with the
choice of either changing the terms of the MDRP or altering
its business model-neither of which, for various reasons, it
wishes to do. (See Id. ¶¶ 77, 78.)

C.
Procedural History

Thrivent
filed the present suit on September 29, 2016, asserting that
the BIC Exemption's bar on class action waivers violates
the FAA and is accordingly unenforceable because it exceeds
DOL's statutory authority. (See Id. ¶¶
85-90.) By way of relief, Thrivent asked that the Court
declare the class action waiver bar to be in violation of the
APA and the FAA and enjoin its enforcement. (See Id.
at 28.) Both parties agreed to proceed immediately with
summary judgment briefing. (See Scheduling Order
[Doc. No. 10].)

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Initially,
DOL argued that the BIC Exemption&#39;s ban against
class-action waivers did not violate the FAA, and that,
pursuant to 28 U.S.C. &sect; 1108(a), DOL had the authority
to condition exemptions on adherence to certain standards,
including allowing class actions. (See Defs.'
Summ. J. Mem. at 21-26 [Doc. No. 24].) The ...

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